From October 15, a 0.4% Merchant Discount Rate (MDR) will apply to eligible person-to-merchant UPI transactions above ₹2,000, subject to a maximum charge of ₹300 per transaction.
Person-to-person transactions and merchant payments up to ₹2,000 will remain free, while categories such as insurance and capital-market payments will have separate rates.
The framework has prompted discussion around the potential revenue it could generate for banks, payment service providers and other participants, as well as the costs it could create for merchants.
Potential revenue from UPI MDR
Mehul Mistry, SVP, Customer Success, Strategy & Growth at Zeta, a banking technology company, estimates that around ₹14,000 crore of daily UPI transactions could fall within the 0.4% MDR-eligible person-to-merchant category.
Based on this estimate, the MDR could generate around ₹57 crore a day, or roughly ₹20,600 crore annually. Mistry said the potential revenue could be distributed across acquiring banks, issuing banks, payer PSPs and third-party application providers.
These are industry estimates, and actual collections would depend on the transaction mix, eligible categories, applicable caps and implementation of the framework.
Why sustainability is part of the debate
Amresh Acharya, MD and CEO of Loylty Rewardz, an Indian customer engagement and loyalty management company, said payment infrastructure involves costs related to areas such as peak-load management and reconciliation, while merchants also incur costs when handling cash.
He said the introduction of MDR could be viewed as an initial step towards developing a sustainable economic model for UPI, similar to the established economics of other payment networks.
Aakash Bansal, CEO of MIDASX, an artificial intelligence (AI)-powered wealth technology platform, said the sustainability of the underlying payment infrastructure is becoming increasingly relevant as UPI scales. He said the new framework could also create an opportunity for fintech companies to develop value-added services around payments, merchants and financial products rather than relying primarily on transaction volumes.
Bipin Preet Singh, Co-founder, MD and CEO of MobiKwik, an Indian digital financial services and fintech platform, said the 0.4% rate for larger merchants remains below the typical cost of accepting credit-card payments and could provide an additional revenue pool for continued investment in payment infrastructure and innovation.
Nalin Negi, CEO of BharatPe, an Indian financial technology company, said the framework keeps UPI free for consumers while protecting micro and small merchants under the P2PM framework. He said around 96% of P2M transactions would remain unaffected and that the framework could create resources for expanding merchant acceptance, payment infrastructure and digital adoption, particularly in smaller towns and underserved markets.
What merchants could get in return
The introduction of a merchant-side fee also raises questions about the value merchants receive from the payment infrastructure.
Dr Ashish Chandra, Founder and CEO of GFF AI PTE. LTD., a Singapore-based enterprise intelligence engineering company, said the impact of the MDR could be more significant for businesses operating on thin margins. For example, a 0.4% MDR on a ₹10,000 eligible transaction would amount to ₹40.
Chandra said payment providers could improve transparency by publishing metrics such as transaction success rates, outage duration, refund timelines, settlement reliability, dispute resolution and fraud-related losses.
He also pointed to the potential role of AI in reconciliation, fraud detection and dispute management, while noting that the benefits would need to be assessed against implementation costs and human oversight.
Consumer impact and recurring payments
The MDR is a merchant-side charge rather than a direct fee on consumers.
Prahlad Krishnamurthi, CEO of Probe42, an Indian financial intelligence and corporate data platform, said consumers should not see recurring payments such as mutual fund SIPs, insurance premiums or OTT subscriptions become more expensive merely because they use UPI AutoPay, as recurring mandates are treated separately under the framework.
For one-time payments, the rates vary by category. Insurance payments above ₹2,000 attract a flat ₹5 merchant charge, while capital-market transactions, including mutual funds, carry a 0.02% MDR subject to a ₹300 cap.
Krishnamurthi said implementation would require accurate identification of businesses and merchant categories so that the applicable MDR is correctly applied and payment costs can be reconciled.
Capital-market transactions have a different impact
The 0.02% MDR applicable to capital-market-related payments has raised a separate issue for brokers.
Parth Nyati, CEO of Swastika Investmart, an Indian financial services group, said the rate is unlikely to materially alter the cost of investing for most retail investors, but the cumulative impact could be more relevant for brokers that process large volumes of UPI pay-ins.
Puneet Maheshwari, Director and VP of Products at Upstox, an online discount brokerage platform, highlighted a different aspect of the issue. He said a customer could transfer ₹5 lakh to a broking account without actually placing a trade, meaning the broker could incur a payment-processing cost without generating corresponding brokerage revenue.
He argued that moving an investor’s own capital into or out of a broking account is economically different from paying a merchant for a product or service, raising a question over whether such transactions should be treated differently from conventional merchant payments.
Implementation will determine the impact
Several industry participants have also pointed to implementation as an important factor.
Hanut Mehta, CEO of BimaPay, an Indian fintech platform, said the flat ₹5 MDR for insurance payments provides a different cost structure from the standard 0.4% rate but highlighted the need for clarity around merchant onboarding, billing systems and how the fee is handled across insurers, aggregators and payment facilitators.
Dharmesh Jadhav, Partner at Nangia Global, a professional services firm that provides tax, advisory, and business consulting, similarly identified merchant classification, prevention of cost pass-through to consumers and coordination among banks, PSPs and UPI apps as potential implementation issues.
For the UPI ecosystem, the new framework therefore introduces a shift from a predominantly zero-MDR model towards differentiated charges based on transaction value and category.
Its impact will depend on the volume of transactions that fall within the chargeable categories, how the resulting revenue is distributed and how merchants and payment providers adapt to the new structure.
